Merchants don't like it when you insult their heritage, clothes or building, and will charge you higher prices for their goods.
This is actually such a perfect encapsulation of the Elder Scrolls experience. The pursuit of a kind of "realism" that's constructed entirely independently of any concerns for game design or player motivation. You can insult a merchant because you could in theory do that in the real world, and they will get pissed off at you inasmuch as that's expressible through game mechanics. The question of why a player would ever want to do this is totally irrelevant; these games see the idea of role-playing as a kind of simulation rather than part of the challenge of accomplishing the goals of the game. It's almost an admirable purity of purpose, at the same time as it's also totally deranged.
There's probably a contrast to be drawn here between this approach to the idea of "role-playing" and the Japanese industry's focus instead on intrinsically aligning your mechanical actions as a player seeking to beat the game with the role the story is asking you to play, but I'm not enough of an RPG gamer to elaborate further than that.
I can almost appreciate how the very fact you CAN do something makes the world FEEL bigger and more interesting, even though it doesn't actually matter in any meaningful way. I appreciate this on a "games are fake" level, because it's a huge amount of work for something players generally won't do except because they can. I think about something like 80% or more of Mass Effect players picking paragon over renegade, but there's an argument that having the options makes being nice feel like a choice. Maybe not worth the actual development cost, but that's a luxury AAA can take.
On the other hand, all choices coming back to being nice or being an asshole is such a weirdly asocial and immature way to look at social interaction, and that's the part I can't stand. I actually don't think dualism is BAD as a game convention because, look, someone has to go through a game and make thousands and thousands of dialogue options for every single conversation and in filling out those choices you need to have some kind consistent framework. The problem is generally that the framework is boring, in large part because the simulation is so broad.
In the context of these types of games, I feel conversation and dialogue is not really about playing a character so much as it's another dimension of the world to explore. You pick a dialogue option the same way you decide whether to go east or west. Conversation is rarely about the player's personality, but about exploring the people you're talking to, a vehicle for exploring people/cultures/ideologies in the world. A perfectly fine way to go about things, but there is very little within very broad dialogue tries that feels like it actually characterizes someone, because characterization is not just about what a person says, but how they say it and why. A personality needs context, history, and motivation, which you can't give a player if you want their backstory to be a blank slate.
If there is nothing within the character, there can be nothing to explore and no way to explore it; in other words, if you want the player to explore their own territory, you have to map it out, or else your choices are like deciding whether to head east or west in a featureless void.
These are all extremely good points and more interesting than the dumbass comment I have to add
But that comment is there is in fact an in game reason you might choose to insult someone in Oblivion.
Or, I think. I may be remembering incorrectly.
So as I remember it, if an NPC hits you in combat before you hit them, the magical all seeing criminality labeling eye doesn't perceived you as having assaulted someone, and so killing them is an act of self defense. So if you want to take somebody's stuff, or whatever, you can sometimes insult them so hard they hit you.
At which point you can draw your enormous sword and explode them
